Market Insider

Tough Inclinations

The grain markets ended the month of March with fanfare on the backs of the U.S.D.A.’s March 31st stocks and acreage report and China switching up some policy. One of the changes was China agreeing to postpone their implementation of a new 1% max dockage tolerance rule on Canadian canola to September 1st (it was supposed to be April 1st!). The other big move was Beijing deciding to scrap its minimum support prices for corn, pushing domestic corn prices immediately down to 5-year lows as the domestic price needs to gap down to that which the international market is paying. While the People’s Republic has never imported more than 5.5 million tonnes in recent years, what the price support removal does is put further pressure on other feed substitutes like barley, DDGs, and sorghum, the last of which saw a record 10.2 million tonnes imported in 2014/15. Without a worthwhile base price to work with, Chinese producers may be more inclined to plant those crops which still have them: wheat and rice.

On that note, we got the U.S.D.A.’s quarterly stocks and prospective plantings report on March 31st – a refresher of the goalposts, if you will, in terms of market fundamentals (hate them or love them, everyone trades U.S.D.A. numbers). The biggest surprise was on corn and wheat acreage numbers, the former to the upside and the latter to the downside. Total wheat acreage is seen falling a whopping 9.3% year-over-year to just 49.56 million acres, the lowest since the 1970. This includes spring wheat acreage dropping a significant 14.3% from 2015’s area to 11.35 million acres, while durum acres are seen growing 3% year-over-year to almost 2 million acres. While that does appear bullish on paper, the quarterly stocks number came in at 1.37 Billion bushels, a 20% increase from this time a year ago, affirming the soft demand fundamentals for the U.S. wheat market as global competition is fierce.

While the market was expecting roughly 90 million acres to be planted by US farmers in 2016 (matching the U.S.D.A.’s Outlook Forum number), they actually came out at 93.6 million, a 6.4% increase over the 88 million acres of the coarse grain planted in 2015 across America. With that bearish number in mind, quarterly stocks of corn rose almost 1% year-over-year to 7.81 Billion bushels (in-line with pre-report guesstimates), confirming expectations that demand also remains tepid in this row crop. For soybeans, quarterly stocks rose 1.5% from last March’s report to 1.53 Billion bushels (slightly below estimates) while 2016 acreage of the oilseed came in below expectations at 82.24 million acres, which is just a 0.5% decline from 2015. More or less, one could assume from these acreage numbers, U.S. farmers are betting on the better maximum yield potential of corn over soybeans and better cash return for planting corn versus wheat.

From a cash grain perspective and per the PDQ Grain Prices website, it’s been a bit of a mixed bag over the past week with the Canadian Dollar trading around 77 cents USD weighing on any positive moves. Canola was up on the good Chinese policy news while wheat prices have remained generally resilient thanks to concerns of dry conditions in the U.S. Southern Plains. However, with some rain now forecasted for the region, prices pulled back a bit. While Minneapolis spring wheat prices gained over 3.4% over the past week for old crop and 2.8% for new crop, basis dropped an average of 8 cents and 6 cents per bushel respectively across Western Canada, netting a net cash gain of roughly 4 cents for both old crop and new crop prices. Canola gained more with futures driving cash prices higher by an average of almost 17 cents per bushel for old crop and 10 cents for new crop across Western Canada.   

Something to keep in mind about the stocks report is that the survey was done at the beginning of March, and with most American planters still 2-3 weeks away at this time of reading from getting into the field, these numbers could intuitively change (what’s a million acres one way or the other eh?!). Some of the planting activity seen in the U.S. southeast has been slowed by wet weather, an obvious contrast to some conditions in western Canadian Prairies. Ultimately, it’s my opinion that the market will likely see the usual seasonal spike for this time of year thanks to seeding pace and grain movement concerns, which makes me inclined to revert to my old saying to make sales on rumours and profit on the facts.

To growth,

Brennan Turner
President & CEO |